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Financially wounded, pioneering CT Green Bank has a path forward

BY Matt Pilon

1/8/2018
Photo | HBJ File
Photo | HBJ File
Green Bank CEO Bryan Garcia and his team are grappling with a major funding cut. Their plan includes reducing staff and expenses and shifting the organization's strategic direction while trying to maintain its clean-energy mission.
Facing the biggest financial threat in its six-year existence, the Connecticut Green Bank will reduce staff, trim deal volumes and pursue new revenue streams to keep itself and its mission alive.

The quasi-public agency, which arranges and provides loans and guarantees for often-complex financing packages that have spurred renewable energy and efficiency projects across Connecticut, was formed in 2011 and is seen as a pioneer in the green lending space that helped spawn similar organizations in other states.

But desperate to close a major budget deficit, state legislators in late October raided from the Green Bank approximately $32.6 million — mostly in ratepayer funds — over two years, which represents more than half of its operating budget.

The Green Bank's board of directors voted unanimously Dec. 15 on a restructuring plan to deal with the cuts, which includes prioritizing deals that provide higher returns while pulling back on agreements, including some that have already been approved, that bring in little to no revenue.

"We know how hard it is to get an 80 percent carbon emissions reduction," said Catherine Smith, commissioner of the Department of Economic and Community Development and chair of the Green Bank's board, referring to the state's legally mandated climate change goals. "This will slow us down."

"It just means we're not going to get as much done," she added.

The goal is to break even on operations within the next four to seven years (the Green Bank had $34 million in revenue in fiscal 2017 and an operating loss of $5.7 million), and the plan thus far includes no borrowing or asset sales.

That will mean a shift in the Green Bank's longtime strategy, from using public money to leverage larger private investments, to using its own limited resources to earn the highest returns possible to support its operations. Among the profitable programs that will remain a focus is its popular C-PACE program, which finances efficiency upgrades in commercial buildings through the owner's property tax bill.

Grant and other programs that haven't proven themselves financially viable will be jettisoned, including pilot programs for anaerobic digesters, combined heat and power plants and microgrids.

Board members will set more precise deal-volume targets this month.

The Green Bank is also exploring the formation of a nonprofit entity where it could transfer some of its staff and programs, including an initiative that provides low- and moderate-income families solar-panel financing.

The Department of Energy and Environmental Protection has committed $5 million of its own budget toward that effort.

"It's the least we could do to help move the mission forward," DEEP Commissioner Rob Klee said.

Forming a 501(c)(3) affiliate could open up new funding streams from foundations and community lenders and it would also serve to bring down costs by more than $1 million a year by eliminating overhead such as pension contributions.

While less profitable than some programs, the Green Bank wants to preserve the solar panel financing initiative in underserved markets because it views it as an important and fast-growing part of its mission.

At least five of the Green Bank's 50 employees will lose their jobs. As many as 10 more layoffs could occur if the Green Bank isn't able to form the nonprofit entity.

Open positions, such as a staff accountant and senior manager, will be eliminated, as will a merit and promotion pool for this fiscal year.

Overall, the Green Bank is targeting a $4.6 million (27 percent) cut in expenses by fiscal year 2019, which includes personnel and sizable reductions in marketing, inspections, program development and other areas.

Pride, frustration

At the Green Bank's Dec. 15 board meeting, CEO Bryan Garcia said the organization was akin to a strong performing portfolio company whose parent (the state) needs help.

He ticked off the Green Bank's accomplishments since its creation: Spurring more than $900 million in private investment in 234 megawatts worth of clean energy projects using just $175 million of public money as leverage. That work has created more than 5,000 direct jobs and reduced carbon dioxide emissions by 3.7 million tons, he said.

"We've delivered outstanding results and we were great stewards of the ratepayer resources," Garcia said. "We even won the Innovations in American Government award [from Harvard's Kennedy School], the 'Academy Award' of government."

"And here we are. We now have to deal with a new reality. And the new reality is going to require us to make difficult decisions to put us onto a sustainability plan."

Board member John Harrity, president of the Connecticut State Council of Machinists, chimed in.

"That's what infuriates me about the sweep, is we have done so well. And people who don't understand the program and maybe don't even understand climate change are making decisions that take a great thing and then chop off a foot and then say 'well, let's see what you can do now.' "

The situation was nearly more dire, as legislators, nearing a budget deal in late October, had discussed a cut approximately twice as large to the Green Bank.

That led Smith to write an appeal to lawmakers, calling the proposed cut "excessive and disastrous" and saying it would effectively end the Green Bank.

Also playing a role in reducing the size of the eventual cut was Gov. Dannel P. Malloy, who oversaw the creation of the Green Bank after taking office in 2011. He argued sweeping into the general fund a pool of ratepayer money dedicated to clean energy was akin to a new tax.

Profit concerns

While some impacts remain to be seen, Garcia noted that several projects have already seen negative effects from the cuts.

For example, a $10 million proposed solar project with the Connecticut State Colleges and Universities system was thrown into uncertainty after the deal's financing partner, Bank of America, expressed concern about the budget cuts. B of A now wants the Green Bank to back the deal with a special state bonding reserve fund to move forward.

While most businesses wouldn't blink an eye at profit being a core motive, some Green Bank directors are concerned about a heightened bottom-line focus.

Matthew Ranelli, a partner at Hartford law firm Shipman & Goodwin, said a focus on breaking even or making a profit may not fit with Green Bank's mission and "may even be antithetical in some cases."

"I worry about it as a talisman for all our decisions," Ranelli said.

He noted that the raided ratepayer funds would return in 2020, barring further action from the legislature.

Gina McCarthy, former administrator of the federal Environmental Protection Agency under the Obama administration, said the profit discussion won't matter if energy companies that work with the Green Bank pull up stakes and move to more favorable states.

"The profitability depends on business partners," said McCarthy, who sits on the Green Bank's board. "They will not be here if Connecticut sends signals like this."

Michael Trahan, who represents clean energy installers as executive director of SolarConnecticut, said it's not clear how the budget cuts will impact solar contractors, but he predicts they will take a hit.

Trahan said he hopes the Green Bank's funding problems are limited to the current biennium.

"The Green Bank is responsible for creating this marketplace," he said. "None of us would be here if it weren't for the financial wizardry of the Green Bank."

Talking points

Beyond enacting its new financial plan in the near term, the Green Bank must now grapple with how to convey the impacts to the legislature and the public.

Some board members were concerned about how the formation of a nonprofit affiliate might look. It's not meant to shield Green Bank funds from further sweeps, they said, but rather a way to grow important programs that may not otherwise survive and to give confidence to third-party investors to put their money in.

While Garcia said the Green Bank still remains "on solid ground," another budget cut in the next biennium would damage its future prospects.

The board spent time in December going over its communications plan and talking points with legislators, partners and others. Harrity voiced one concern about how the process might go.

"I don't want someone in the legislature to say 'well we took the money away and they're just fine,' " he said. "This is a contingency plan to deal with the fact that they put a big hole in the boat, but it's not like it's all smooth sailing and we're fine."